General Ledger And Business Reporting (GL/BR) Process

1. General Ledger And Business Reporting (GL/BR) Process

2. Illustrate how the business processes feed data required for GL updates Explain how GL/BR reporting capabilities support an organization’s external & internal reporting functions Analyze the limitations of the traditional GL approach in contemporary systems Describe how client/server architecture implements GL/BR Analyze control issues and Control plans associated with client/server hardware and software used to implement the GL and related business reporting extensions Evaluate potential problems in operating the GL and possible solutions to those problems Learning Objectives GL/BR

3. GL/BR is a Spoke on AIS Wheel • The GL/BR process • Assembles financial information for both internal and external users • Depends on process controls for accuracy and completeness • Relies on pervasive controls for system security • Documentation of effective controls is required by Sarbanes-Oxley

4. Functions of GL/BR • GL • accumulating data, classifying data by GL accounts, recording data in those accounts • fueling FR, BR and other reporting subsystems

5. Functions of GL/BR, Cont’d. • BR • preparing general-purpose, external financial statements • ensuring that F/S conform to GAAP • generating web-based forms • generating ad hoc & predetermined business reports

6. GL/BR Horizontalperspective 1. Business process feeders send updates to the business reporting department.

7. GL/BR Horizontalperspective 2. Treasurer notifies the business reporting department of investing transaction activities.

8. GL/BR Horizontalperspective 3. Treasurer notifies the business reporting department of financing transaction activities.

9. GL/BR Horizontalperspective 4. Controller notifies the business reporting department of various adjusting entries.

10. GL/BR Horizontalperspective 5. Finalized budget figures are sent to the business reporting department from the budgeting department.

11. GL/BR Horizontalperspective 6. Adjusted trial balance figures are sent from the business reporting department to the financial reporting officer.

12. GL/BR Horizontalperspective 7. Actual and budget figures are sent from the BR department to the budgeting department; the actual results will be one of the inputs used in formulating next period’s budgets.

13. GL/BR Horizontalperspective 8. Actual and budget figures are sent by the business reporting department to the managerial reporting officer.

14. GL/BR Horizontalperspective 9. Financial reporting officer sends GAAP-based financial statements to Treasurer, Controller, and outside parties (owners, banks, SEC)

15. GL/BR Horizontalperspective 10. Managerial reporting officer sends performance reports to various managers.

16. Manual Reports The old method of manually preparing financial reports Financial reports are comprised of text and data from the operational data stores formatted as financial statements Often data had to be re-keyed for each different report created XBRL Enabled Reports Operational store data contains descriptive (semantic) tags XBRL enabled report reads descriptive tag and merges data into report Data from one data store can be used to generate many different reports including Web reports without re-keying E-Business Angle Operational stores are financial information stored in databases used to create the chart of accounts, GL and financial reports

17. Integrated Systems Perspective Including ERP • Events summarized automatically by the system eliminating the need for a separate GL process • The GL is simply a report summarizing transactions by account and by date in ascending order • Treasurer still enters investment and financing transactions into treasury module • Controller still enters adjusting entries • Financial reports are generated by the system using ad hoc queries or pre-established reports

18. Internal and External Business Reporting Flows

19. Responsibility Accounting/Reporting System • Duties of managerial reporting officer • Reports to assist internal management decision making • Performance reports comparing actual performance with budgeted performance • Reports are most detailed at lowest levels of management, least detailed at highest levels of management • It ties into the concept of responsibility accounting

20. Responsibility Accounting Performance Reporting

21. Summary of Horizontal and Vertical Information Flows

22. Horizontal flows Events are processed in various operational systems Culminates in GL and external business reports Vertical Flows GL and other event information flow upward through responsibility accounting system Culminates in internal performance reports Summary of Horizontal and Vertical Information Flows

23. GL/BR Process: Context Diagram • Various feeder processes provide event information • Source of internal and external financial reports

24. GL/BR Process: Level 0 DFD • Detail of common GL/BR processes

25. GL Hierarchical Coding • 1113 Cash in Bank • 1xxx = assets • x1xx = current assets • xx1x = cash accounts • xxx3 = cash in bank • -------------------------------------------------- • 1111 might mean petty cash1112 might mean change fund1121 might mean trade accounts receivable1122 might mean receivables from officers

26. Chart of Accounts • Must be flexible to meet the firm’s financial and managerial reporting needs • For a multi-entity firm, there is need to code for departments, geographical regions, product lines, divisions, and special reporting entities • Should accommodate “rolling up” or consolidating accounts into statements using different forms

27. Technology-enabled Issues in BR • FR modules in ERP systems • Balanced Scorecard • Business Intelligence • Business Reporting via the Internet • Public Databases • Object-oriented databases

28. ERP Financial Module • Many options available for processing business events that affect multiple processes • Not all users do not need all these options • For security reasons and for ease of use, we limit the access to menu items to only those needed a user to perform his or her responsibilities • We limit the menu options that appear • We allow a user to have different privilege levels for different information—that is, view access, write access, entry access, and/or change access • Carefully set up the system limitations for that specific user • Each user has their own ID and password

29. Balanced Scorecard • Methodology for assessing organization’s business performance via • Financial • Internal business processes • Customers • Innovation and improvement activities • Functionality included in applications by all major ERP vendors

30. Business Intelligence • Integration of statistical and analytical tools with decision support technologies • Facilitates complex analyses of data warehouses by managers and decision makers • Typical module in ERP systems

31. Extensible Business Reporting Language (XBRL) • XBRL is a form of XML-based language consisting of a set of tags used to unify presentation of business reporting information into a single format • Easily read by many software packages • Can be easily searched by web browsers • Enables easy uploading and downloading of information to other software packages for update, analysis, etc

32. Public Databases • Aid to financial reporting officers in determining BR treatments • National Automated Accounting Research System (NAARS) • The Internet may be viewed as one huge public database

33. Typical Controls Passwords and access controls Access logs kept and reviewed Call back procedures for remote log on Controls on database/file access Controls on level of access/privileges, e.g., read-only file access Diskless workstations Data encryption and digital signatures Removable drives Backup facilities for extended network failures File locking/contention controls IT Control Processes forWorkstation-to-Workstation Networks

34. Typical Controls Server logs kept and reviewed Standardized file transfer formats Read-only access to database Front-end workstations process data relieving server Data entry to event data store and subsequent batch update to database Workstations Connected to Servers

35. Section 302 Requires CEO and CFO to certify that financial statements contain neither material untrue facts nor omit material facts. Penalty for violation of section 302 up to 20 years prison and $5 million in fines Section 401 Requires financial statements that clearly reflect the economic reality of business events Section 404 Defines report on internal control that must be provided with annual report Requires management assertion and auditor attestation on internal control effectiveness Section 409 Requires rapid and current disclosure of information regarding material changes in financial conditions Sarbanes-Oxley Act of 2002

36. Current Environment of Financial Reporting • Today’s environment demands rapid access to information • Investors want information sooner • Sarbanes-Oxley demands “rapid and current” disclosures • SEC has shortened the time companies have for reporting certain events • Real-time reporting of events summarized in the GL is just over horizon